If you’re thinking about buying a home, you’ve probably heard a lot about closing costs. Closing costs can come at a hefty price- up to 5% of your home’s purchase price. When that amount must be paid up front, you need to make sure you have a sizable amount of cash on hand.
There’s many different kinds of fees included in the closing costs. Your lender will give you an estimate of what your closing costs will be, but you may not know what any of the terms that are included actually mean.
The Loan Origination Fee
This is the fee charged by your lender that covers the administrative costs that are associated with creating and processing a mortgage. This could also be called an underwriting fee.
Title Search Fee
This is how much the title insurance company charges to perform research on the title of the home. In some cases, the title may have some issues associated with it, so this research is to protect you. There’s also title fees known as lender’s title insurance and owner’s title insurance. You need to have lender’s title insurance, but owner’s title insurance is completely optional.
Credit Report Fee
This covers the obtaining and review of your credit report.
Application Fee
There’s also a fee when it comes to reviewing your mortgage loan application.
Home Appraisal
This fee covers the appraiser who is chosen by your mortgage company in order to assess an accurate value of the home.
Tax Monitoring Fee
This fee supports tax research on the home to determine if property taxes have been paid.
Survey
The property survey covers all aspects of the property bounds including gas lines, roads, walls, easements, property improvements, and encroachments.
Attorney Fees
The attorney fees will cover all of the document reviews, the agreements, and the escrow fees.
Insurance Payments
When you close on a home, your entire first year of home insurance payments must be made at the time of closing. If you have bought your home with an FHA loan, you’ll need to pay mortgage insurance premiums at closing as well. You’ll also need mortgage insurance payments if you put less than a 20% down payment on the home.
Escrow Property Taxes
The lender requires that you pay your property taxes up front. This money will be held in escrow and the taxes paid from there.
As you can see, there’s a lot that goes on during the closing of a home. Make sure you have some water handy, it’s going to be a long process! Understanding what will happen at closing when you buy a home can help you to avoid any surprise fees or financial burdens.